MORE SMOKE AND MIRRORS

If you were looking for a classic bit of spin, then David Cameron’s promise to reduce or remove the so called ‘Green levies and subsidies’ of energy bills comes close to being it. This is classic misdirection, it makes DC look good, and distracts people’s attention away from the recently agreed guaranteed (and well above the market rate) energy price for the planned nuclear plants, something that should permanently skew the alleged ‘free market’ for energy.

It also effectively ignores the excessive profits that have been generated by the ‘big 6’ a situation that has been aggravated by a lack of effective regulation. One way of the other we are all paying the price for effectively having a pretty much unregulated energy market. This is one of the legacies of the last Labour government, who spent 13 years in office sitting back and watching this situation develop. 

Excessive profits and Tax evasion - surely not?

The ‘big 6’ energy cartel members, coincidentally ramp up the energy bills as our winter approaches, yet this is only part of the ‘corrupt’ legacy that surrounds the few remaining energy giants. The independent on Sunday (27.10.2013) and Corporate Watch (a not-for-profit research group) have revealed that more than 30 UK companies have cut their taxable profits by racking up interest on debt from their owners.

This minimises or in some cases entirely wipes out their UK corporation tax bill.  As most of the owners are based abroad, 20 per cent of the interest payments would usually have to be sent straight to HMRC, minimising the overall saving. As a result of swift footwork by the accountants, the money is lent via offshore stock exchanges this means that it qualifies for a regulatory loophole called the "quoted Eurobond exemption", no tax is withheld.

Scotia Gas, 50 per cent of which is owned by SSE, the energy giant which is about to put its prices up by more than 8 per cent, has avoided an estimated £72.5 million pounds in tax. UK Power Networks and Electricity North West, responsible for running large sections of Britain's electricity network, have both saved more than £30m. Scotia Gas is the second-largest gas distribution firm in the UK, serving 5.8 million people in Scotland and in the South and South-east of England.

Half of it is owned by SSE, the rest is owned by the Ontario Municipal Employees Retirement System and the Ontario Teachers' Pension Plan. After they bought the networks from National Grid Plc in 2005, the new owners lent the majority of their money – about £530m at a 12.5 per cent interest rate – through the Channel Islands Stock Exchange rather than investing it in shares in the company.

Scotia has since paid interest of £537.3 million pounds on these loans. The £268.7 million pounds  of this that went to the Ontario pension funds cost the UK an estimated £72.5 million pounds in tax revenues. SSE Plc pays full UK corporation tax on the interest it receives as it is based in the UK but will have signed off the scheme.

More than 30,000 people contacted the Citizens Advice Bureau in the 13 days after SSE started the latest round of price hikes. It announced its increase on 10th October and was quickly followed by British Gas, Npower and Co-operative Energy. The massive rise in those contacting the charity represents a 55 per cent increase on the number of consumers normally seeking advice about the best power deals.

The Ontario Teachers' Pension Plan also owns National Lottery operator Camelot and Bristol Airport, both revealed to be using the tax-avoidance scheme last week. It is among several foreign pension funds investing through this legal loophole. Two of Britain's 14 privately run electricity networks – Electricity North West and UK Power Networks – also use the loophole.

A portion of every Briton's electricity bill payment is given to their local power network to pay for the running and maintaining of cables in their area. UK Power Networks, which owns and maintains power cables and lines for eight million people in London, the South-east and East of England, has avoided an estimated £38 million pounds since 2010 from paying £164.4 million pounds via the Cayman Islands to firms controlled by Li Ka-shing, a Hong Kong tycoon and Asia's richest man.

The Cheung Kong group also owns Northumbrian Water, among several water firms that use the quoted Eurobond exemption. Electricity North West owns and operates the region's electricity distribution network, connecting 2.4 million properties to the National Grid. It has avoided an estimated £30 million pounds in tax after sending £107.2 million pounds to its owners, JP Morgan Infrastructure Investments Fund and Colonial First State, since they bought it in 2007.

The Eurobond exemption was introduced in 1984 to encourage third-party investment into UK companies. But analysis of listings on the Channel Islands Stock Exchange and UK company accounts shows firms across the economy are using it to minimise tax bills by borrowing from their owners. More than £2 billion pounds a year has left the UK as interest payments to owners, avoiding an estimated £500 million pounds compared with if loan amounts had been invested in companies' shares.

Considering that other stock exchanges such as the Cayman Islands and Luxembourg also qualify for the exemption, the reality is that the total amount of tax being avoided is likely to be much higher. Incidentally HMRC, who are busy shedding jobs and cutting services to the bone, know that the exemption is being misused and even considered restricting it last year, but they backed down after lobbying from the financial industry. 

THE ISLE OF THE BLESSED TAX EVADERS

Luxembourg has agreed to reduce the secrecy surrounding its banks, saying that it will implement rules on the automatic exchange of bank account information with its European Union partners from 2015. The country with a population of only 500,000 people, has banks and other financial institutions with assets worth more than 20 times the country's economic output. The Prime Minister of Luxembourg, Jean-Claude Juncker, plans to introduce the reforms in two years, in line with the EU Savings Directive. The rules of the Directive aim  to create greater transparency and minimise tax evasion. 

Since the financial crash Calls for a crackdown on bank secrecy have been increasing, as governments are increasingly desperate to raise more taxes to support their finances. Luxembourg will now move to strengthen co-operation with foreign tax authorities. Germany signed a tax evasion treaty with Switzerland - another European banking centre known for its secrecy – earlier in the month. The treaty aims to give the German tax authorities the ability to claw back taxes from their citizens who may be hiding money in Swiss banks. Austria, the only EU hold out against banking transparency, has attacked the UK as an “island of the blessed for tax evasion and money laundering". 

Austria’s finance minister, Maria Fekter, has been under intense pressure to put an end to Austria's long-held tradition of allowing foreigners to bank secretly. She has attempted to deflect attention towards the UK. Fekter, a member of Austria's governing coalition, says the European Union cannot force Austria to reform its controversial banking secrecy laws without also forcing the UK to crack down on tax havens in its jurisdiction. Across the pond, the US Government is trying to crack down on its citizens hiding money offshore and is due to start talks with Austria soon. These recent developments leave David Cameron and George Osborne, staunch defenders of the City of London and Crown Dependency Tax Havens, which coincidently happen to be centres of worldwide money laundering operations. 

NOT ON GEORGE’S RADAR...

Across the other side of the pond tax evasion remains an important issue, on this side of the pond you get the impression that the Conservative part of the Con Dem Westminster government just hopes it will quietly go away. As a direct result of the US government’s pursuit if tax evaders Switzerland's oldest bank is to close permanently after pleading guilty in a New York court to helping US citizens evade paying their taxes. The Swiss bank, Wegelin (established in 1741) will pay $57.8 million dollars (£36 million pounds or 44 million euros) in fines to US authorities.

Once the fine has been paid then Wegelin will cease to operate as a bank. The bank had accepted that it had allowed more than 100 American citizens to hide something close to $1.2 billion dollars from the Internal Revenue Service for nearly 10 years. Wegelin, based in the small Swiss town of St Gallen, was started 35 years prior to the US declaration of independence. It is the first foreign bank to plead guilty to tax evasion charges in the USA. In recent year other Swiss banks have taken steps to prevent US citizens from opening offshore accounts to avoid paying tax.

US President Obama was 100% right to suggest that the governments of the world should jointly tackle the issue of tax evasion and tax havens. The problem is that successive Westminster Governments are involved in tax evasion and indirectly support tax evaders, as a significant proportion of tax evasive activities revolve around the UK Crown Dependent territories. By tackling the tax havens, the tax avoidance and the questionable dealings of the derivative traders, hedge funds and the off balance sheet trading then we might go so way towards dealing with the consequences of the worldwide financial crash.

I am shocked to discover that there is tax evasion here?

However, I suspect that nice Mr Cameron and the other 18 millionaires in the cabinet will do nothing to close the tax loopholes – so much for all of us being in it together? Perhaps it's just that we are ordinary taxpaying citizens just expect too much from government.

As the UK Government continues to be heavily involved in aiding and abetting tax evasion worldwide via British Overseas territories (including the Cayman Islands) and will actively fight in Europe to prevent open and transparent accountability and regulation for the City of London but won't chase up tax evaders.

Expecting the Tories or the party formerly known as New Labour to seriously tackle tax evasion is perhaps a little naive as they are part of the problem. The Lib Dems might deliver on electoral reform or any of the three Westminster parities to have an honest debate about Party funding before tax evasion is dealt with. Westminster helps to hide some £ 1.6 trillion pounds from various nations’ tax authorities, and some of the city banks are hand in wallet with drug dealers, dictators and terrorists when it comes to money laundering. Hmmm...Over to you then George...

THE CONTENTS OF GEORGE’S IN-TRAY?

Tax evasion! Surely not!

One way or another, tax evasion and tax avoidance is rarely out of the headlines especially as many heavily indebted governments are increasingly keen to hunt down every tax dollar / euro or pound that is owed. Considering that the Conservative elements of the Con Dem coalition government continues to looks slightly uneasy whenever tax avoidance and tax evasion comes up I cannot help wondering whether or not the National Audit Office report on tax evasion will make it out of George Osborne’s in tray.

A National Audit Office report has revealed that of HM Revenue and Customs (HMRC) is struggling to curb aggressive tax avoidance schemes is costing the UK billions of pounds in lost tax.  HMRC is faced with a backlog of 41,000 cases with potentially up to £10.2 billion pounds worth of evaded tax at stake. The National Audit Office (NAO) said tackling tax avoidance was difficult but HMRC had to do better. In the last two years HMRC has successfully challenged 40 tax avoidance schemes.

The NAO revealed that between 2004 and 2011 some 2,300 avoidance schemes were disclosed to the tax authorities, but as around 100 new schemes have emerge every each year. It has been estimated that there are potentially some 30,000 users of what are known as employment intermediary schemes and partnership loss schemes - where partnerships that make record a loss to shelter their other income from tax. The loss is artificially inflated via "circular loans" (or deferred expenditure) which are never actually incurred to exceed the amount actually invested in the partnership.

HMRC has tried to tackle the practice with enforcement action in a few “lead" cases, but investigations can take years to resolve and any rulings cannot always be applied successfully elsewhere.  Despite this since April 2010, HMRC has been started 110 avoidance cases and despite being successful in the vast majority of cases where judgements have been reached the NAO suggested that there was no evidence that litigation was proving an effective deterrent to tax evasion and avoidance.

Tax evasion is only part of the problem, as Tax Research UK estimated that the Exchequer loses out to the tune of £64 billion pounds per year through shadow economic activity, which is 16 times larger than the estimated £ 4 billion pounds that the UK Government misses out on due to tax evasion. That works out at roughly about £1 pound out of every £8 in the economy.

Despite this the Con Dem Government continues to pursue a reckless slash and burn (cut) approach to the public sector. They have reduced the number of staff in Revenue and Customs from around 100,000 to 65,000 and there are further plans to reduce the numbers to around 50,000 by 2015.

To expect the Tories or New Labour for that matter to seriously tackle tax evasion is perhaps a little naive as they are part of the problem. It would be a bit like expecting the Lib Dems to deliver on electoral reform or any of the three Westminster parities to have an honest debate about Party funding.

Perhaps the ordinary tax paying citizens just expect too much, I mean the UK Government continues to be heavily involved in aiding and abetting tax evasion worldwide via British Overseas territories (including the Cayman Islands). They help to hide some £ 1.6 trillion pounds from various nations’ tax authorities, and some of the city banks remain hand in glove with drug dealers, dictators and terrorists when it comes to money laundering. So clearly we are not all in it together.

TAX EVASION: LEARNING FROM GREECE

Costas Vaxevanis, a Greek journalist has been acquitted of breaching privacy for publishing the names of 2,000 suspected tax evaders. He published a list of Greeks with Swiss bank accounts, including a government minister and other prominent figures in public life, in Hot Doc, the weekly magazine that he edits. In court, his lawyers argued that the charges were outrageous and said no-one on the list had actually complained of a breach of privacy. After a trial lasting one day, an Athens court found Mr Vaxevanis innocent.

Costas Vaxevanis

The court ruling comes at a time when Greece is being urged by international lenders to crack down on tax evasion as part of far-reaching reforms demanded in exchange for billions of euros of bailout money. The list of suspected evaders was reportedly leaked by an HSBC employee and passed to IMF chief Christine Lagarde when she was French finance minister in 2010. She apparently handed the list to the Greek authorities, but they sat on it, taking no action.

At least two of Greece's former finance ministers have admitted seeing copies of the list. The current Greek finance minister, Yannis Stournaras, (in office from in June), has told parliament he has not seen the list. The heavy handed prosecution has left lots of egg on the faces of current Greek Government. The Athens court took little time to acquit the journalist, and observers (according to the AFP news agency) in the courtroom broke out in applause. Greece may have given us democracy, but, perhaps there are some other things we can learn from them when it comes to exposing tax evaders.